Free Riding Rule

In a cash account, an investor must pay for the purchase of a security (meaning, the trade must settle) prior to selling that security. If an investor buys a security and then sells that same security without paying for the security in full by settlement date, the investor is considered to be “free riding.” IBKR's implementation of the free riding rule uses an end of day check to see if a position was closed prior to its trade settlement date. This IBKR end of day surveillance would still consider closing a position before settlement a Free Riding violation and automatically puts the account into "Cash Up Front" restriction for the next 90 days.

Free riding examples that would be considered a violation at Interactive Brokers

Example A:

1) On T, the account has settled cash of $10,000

2) On T, the account buys ABC for $10,000

3) On T+1, the account sells ABC and buys $10,000 of XYZ

4) The customer sells the XYZ shares without depositing sufficient funds to pay for the purchase of XYZ in full


Example B:

1) On T, the account has fully paid for stock in ABC and no excess cash

2) On T, the account sells $10,000 of ABC

3) On T, the account buys $10,000 of XYZ

4) On T+1, the account sells the XYZ shares without depositing sufficient funds to pay for the purchase of XYZ in full


The end of day surveillance process would consider both of these scenarios to be free riding violations, which would restrict the account to only purchase using settled funds for 90 days. IBKR has put certain controls in place to help prevent free riding violations. Your Total Cash Value includes your settled and unsettled funds, and you will be able to place a new order when your Available Funds (ELV - Initial Margin) is positive (as that represents your fully settled cash after a closing trade). The real time check for fully settled cash is done at the Credit Check when entering a new order.

Account holders who wish to have access to unsettled funds prior to the settlement day may do so by requesting a margin type account. Under a margin type account, unsettled funds may be used for trading purposes but may not be withdrawn until settlement. Account holders maintaining a Cash type account may request an upgrade to a Margin type account by:

  1. Logging in to Client Portal
  2. Clicking the User menu (head and shoulders icon in the top right corner) followed by Manage Account
  3. In the Configuration section, clicking the Configure (gear) icon for Account Type to request an upgrade from Cash to Margin.

Please Note

  • Requests will be reviewed by the IBKR Risk and Compliance Departments. Approval typically takes 24 to 48 hours
  • If you recently downgraded your account from Margin to Cash, market regulations require a waiting period of 30 days before your account becomes eligible for Margin again.